Icelandair traces its roots back to 1937, when Flugfélag Akureyrar was founded in Akureyri on the north coast of Iceland. Flight operations started in 1938 with a single floatplane of the type Waco YKS-7. In 1939 the airline was grounded when this aircraft was destroyed in a capsizing accident. The company moved to Reykjavík, where it acquired another Waco aircraft and was re-launched in 1940 as Flugfélag Íslands, which translates as Flight Company of Iceland.[5] Previously, two unrelated airlines of the same name had existed in the country (from 1919 to 1920, and between 1928 and 1931).[6] For international purposes, the name Iceland Airways was adopted.[7]

In the same year, comfort and performance of domestic flights in Iceland could be improved with the introduction of the Douglas DC-3. A total of six airliners of that type had been purchased, which remained in service with the airline until 1972, the oldest one being still flightworthy as of 2011.[10] Until the late 1960s, Flugfélag concentrated mostly on domestic flights, where it initially faced fierce competition from Loftleiðir, another airline which had been founded in 1944. When a merger proposal of the Icelandic government was rejected by the two airlines, the domestic routes were split among them as a measure to ease competition. When Loftleiðir pulled out of the domestic market in 1952 to fully concentrate on international flights, Flugfélag became the main domestic carrier of the country.

International services stayed part of the business model of Flugfélag, though to a far lesser extent compared to Loftleiðir. In 1948, the Douglas C-54 Skymaster was introduced on those routes, and in 1957 two new Vickers 759 Viscounts were acquired, the first turboprop airliners to be operated by an Icelandic airline. In the 1950s, Flugfélag began to use the 'Icelandair' branding for its international flights.[7]

In 1967, Flugfélag was the first Icelandic airline to join the jet age, when a Boeing 727-100 dubbed Gullfaxi was put into service.[11] Another 727 was acquired in 1971, and the aircraft type was operated until 1990.[12] In 2008, the cockpit section of the Gullfaxi was put on display at the Akureyri Aviation Museum.[13]

Another company called Loftleiðir had been formed in 1944 by three young pilots returning from their flight training in Canada. Their company, whose name roughly means "Skyways", concentrated on Icelandic domestic air services for the first few years. The first aircraft used were two Stinson Reliants, and then a Grumman Goose[14]amphibious aircraft.

At first, Loftleiðir, like Flugfélag Íslands, concentrated on domestic air services. Loftleiðir began scheduled international operations in 1947.[15]

By 1952, the Icelandic authorities were very worried that fierce competition between both Icelandic airlines would ruin both companies, and attempted to force a merger between them.[16] This did not happen at the time, but instead the authorities split up the domestic routes between the two airlines.[17] As a result, Loftleiðir ceased domestic flights in Iceland entirely, concentrating instead on international flights.[16] Loftleiðir's pioneering low-fare services across the North-Atlantic then commenced in 1953.[18] In a way, Loftleiðir can even be considered a sort of precursor of the low-cost carriers that started operating in the 1970s.[19][20][21] This made it a popular airline for travel between Europe and North America.[22]

The late 1960s were an exciting time for Loftleiðir.[23] In 1969 the company acquired International Air Bahama, a small airline operating Douglas DC-8 jet aircraft out of the Bahamas with transatlantic nonstop service between Nassau and Luxembourg,[24] and a year later Loftleiðir became one of the founders of Cargolux, a cargo airline. Also in 1970, Loftleiðir entered the jet age with its first two Douglas DC-8 aircraft.[25]

During those years, Loftleiðir was often referred to, even by the company's own staff, as "the Hippie Airline" or even "the Hippie Express".[26] Loftleiðir was not famous for speed or punctuality, but flying with the company became a sort of rite of passage for young "hippies" from America travelling to Europe, one of whom was future president of the United States Bill Clinton.[27][28]

During the 1970s energy crisis, the economic situation for both Flugfélag and Loftleiðir worsened. The government of Iceland initiated a new attempt to merge the two airlines, which could be realized in 1973 following lengthy and difficult negotiations.[29] The staff of Loftleiðir complained that Flugfélag, although smaller, had gained the upper hand in the united company.[30] A holding company called Flugleiðir was created, which combined the two companies and began to streamline staff and operations.[31] At the time of the merger, two thirds of the passenger traffic of the airline were international transatlantic crossings, and Flugfélag's fleet of Douglas DC-3s and Boeing 727s was enlarged by the Douglas DC-8s of Loftleiðir. In 1979, Flugfélag bought all of Loftleiðir's assets in Flugleiðir, and the airline was renamed as Icelandair.

The aircraft fleet of Icelandair remained mainly unchanged until the Boeing 757-200 became the new backbone for transatlantic flights during the 1990s. The domestic Fokker F27s were replaced by Fokker 50s and Boeing 737s deployed on European routes. The European hub at Luxembourg – Findel Airport had been taken over from Loftleiðir. Passenger count topped one million in 1995[citation needed] as the company's business grew on a reputation as a "backpacker airline", similar to Loftleiðir, which had been referred to as "Hippie Airline" since the late 1960s. In the same year, it was begun to dismantle the Luxemburg hub in favor of today's decentralized European network, linking the largest cities non-stop to Reykjavík.[32]

In 1997 the domestic operations of Icelandair, part of which had previously been operated under the 'Flugfélag Nordurlands' branding, were combined with small airline Nordurflug to form the Air Iceland subsidiary,[33] allowing mainline Icelandair to fully concentrate on international flights since then. In 1999, a new aircraft livery was introduced, as part of an image campaign designed to retire Icelandair's "backpacker" label in favor of an emphasis on business travel. From 2001, the Icelandair hub was moved to Keflavík International Airport. As Icelandair particularly focuses on flights to North America, the company was significantly affected by the airspace closure following the September 11 attacks in the same year.

The Flugleiðir holding was reorganized as Icelandair Group (for aviation business) and FL Group (for non-aviation finance and investment business) between 2002 and 2005, with Icelandair becoming the largest and most important of eleven subsidiaries. The wet-lease and charter department, which was founded in 2003, was named Loftleiðir Icelandic, thus re-introducing a familiar name.[34]

Like most Icelandic companies, Icelandair was hit quite hard by the 2008 financial crisis in the country, but was well on the road to recovery[citation needed] when another crisis of a very different kind hit in 2010. The air traffic restrictions following the 2010 eruptions of Eyjafjallajökull resulted in large parts of the European airspace being closed down. The air travel disruption coincided with the start of the important summer season for the company. The in-house crisis management organization began assessing the situation once the scale of the problem had become known.[35] Thrice-daily crisis meetings were held at the airline's headquarters. Icelandair tried to operate as many passenger flights as possible, keeping its hub at Keflavík open and diverting European flights to airports that were still open. The eventual closure of Keflavík due to the volcanic ash cloud coincided with an improvement of the situation towards Europe, which allowed Icelandair to move its headquarters with 200 staff to Glasgow and operate flights from there for ten days,[36][37] with shuttle flights to Iceland's Akureyri Airport and round-the-clock bus shuttles onwards to Reykjavík.

In the aftermath of the eruption, the government of Iceland launched the successful[38][39][40] "Inspired by Iceland" campaign to regain confidence in travelling to Iceland for tourists and business people,[41] of which Icelandair was a leading participant and initiator.[36]

When the Grímsvötn volcano erupted in 2011, Icelandair once again had to cope with airspace closures in Europe, though this time to a lesser extent due to a higher level of political preparedness.[42][43] Weekly newspaper The Economist claimed that Icelandair could even take advantage when catering for disaster tourists.[44]

In February 2011 Icelandair was chosen "The Knowledge Company" of the year and Icelandair CEOBirkir Hólm Guðnason was picked as "Man of the Year" in the Icelandic business community.[45] In both categories the panel of judges of the Association of Economists and Business Graduates in Iceland said that "the fine results of the company in the previous year showed both a high degree of skill and specialist knowledge within the company as well as excellent leadership."[45] In October of the same year, the airline was awarded the title "Marketing Firm of the Year in Iceland", by a judging panel from IMARK, the Marketing Association in Iceland.[46]

After having launched scheduled flights to Washington D.C. in 2011,[47] Denver was announced as a new U.S. destination for 2012, followed by Anchorage in 2013, bringing the total number of cities served in the country up to eight, along with Boston, Minneapolis, New York City, Orlando and Seattle.[48] Also in 2012, Icelandair resumed domestic services, with regular flights linking Akureyri to its Keflavík hub through subsidiary company Air Iceland.[49]

Operations have doubled over a five-year period. New destinations in 2014 were Edmonton and Vancouver in Canada; and Geneva. Twice weekly flights to Vancouver commenced on 13 May 2014 and continued until October that year. Flights to Edmonton started on 4 March 2014, with a year-round service operating five times a week. The Geneva service started on 24 May 2014 and continued twice weekly until September.[50]

On 9 December 2014, Icelandair revealed a northern lights themed Boeing 757-200 (registration TF-FIU) named Hekla Aurora.[51] The aircraft was officially launched in February 2015 as part of the company’s #MyStopover campaign. The exterior, which was hand-painted by a team of highly skilled airbrush artists from the UK, features artwork depicting an Icelandic winter scene complete with the Aurora Borealis. An installation of LED mood lighting in the cabin continues the theme by emulating both the colours and dancing patterns of the aurora. As part of Icelandair’s transatlantic fleet, the Hekla Aurora flies to all of the airline’s 40 destinations and has a three-day schedule available for passengers and observers.[52]

On 5 February 2015, Birmingham became Icelandair’s 5th gateway in the UK, and the 39th overall, with flights operating twice weekly, on Thursdays and Mondays.[53] On 19 May 2015 Icelandair launched scheduled flights to and from Portland, Oregon in the US: its 14th destination in North America. Flights were set to operate twice weekly, on Tuesdays and Thursdays, until 20 October.[54] Further expansion of Icelandair’s global network was announced on 12 May 2015 with new, year-round services from Chicago O’Hare International Airport. Services commenced on 16 March 2016, with flights to Iceland operating four days a week.[55]

On 17 August 2015 Icelandair announced the augmentation of its global flight network with a new service between Keflavik and Aberdeen, the company’s second Scottish destination. The new service, operated by Air Iceland (a subsidiary of Icelandair Group), commenced in March the following year, with flights scheduled four times per week.[56]

Icelandair commenced scheduled flights to Paris Orly Airport beginning on 29 March 2016.[57] Services to Montreal, Canada began on 26 May 2016.[58]

Since the 1960s, Icelandair has offered passengers travelling on transatlantic flights between North America and Europe an opportunity to stopover in Iceland for up to seven days, at no additional cost. In order to raise awareness about its stopover offer, the company launched a new social media initiative in 2014, with the hashtag #MyStopover.[59]

Icelandair offers three booking classes: Economy, Economy Comfort and Saga Class (the last being equivalent to business class). Free meals are only available in Economy Comfort and Saga Class, and a buy on board service is provided for Economy Class passengers.[60]

All of Icelandair's aircraft are equipped with a free of charge AVODin-flight entertainment system that includes seatback, touch-screen monitors for each passenger.[61] The airline claims to be especially children-friendly. At-cost meals, blankets, pillows and headsets are provided, and the inflight system hosts a selection of children's movies.[62]

Almost all of Icelandair's fleet is equipped with in-flight WiFi, provided by Row 44. The installation of WiFi in all the airline's B757-200/300 is expected to be completed by the autumn of 2015.[63][64]

Special Assistance is provided for travelling with pets,[65] young travellers and infants,[66][67][68] and Special Service, e.g. for blind people with seeing-eye dogs, expectant mothers, wheelchair service, POC systems.[69]

Icelandair Info, the inflight magazine of Icelandair, is printed four times a year in Icelandic and English. First published in 2008, it is also the product catalogue for the airline's Saga Shop. The frequent flyer program of the airline is called Saga Club.[70]

On 1 April 2013 Icelandic band Sigur Rós debuted its latest album, Valtari, exclusively onboard Icelandair's aircraft, two months before the album's general release. Biophilia, Björk's 2011 album, had earlier been released on Icelandair's fleet in the same way.[71]

In 2005, the airline, on behalf of its parent company Icelandair Group, announced an order for ten Boeing 737-800 aircraft with options for five more.[81] Those options were later exercised.[82] These were not placed into service by the airline but leased to other airlines.[83] During that same year, Icelandair announced an order for two Boeing 787 Dreamliners.[84] In 2006, Icelandair announced an order for two more Boeing 787s.[85][86] In 2011, it was announced that orders for three of the 787s had been cancelled.[79]

On 13 February 2013, Icelandair Group announced that the company had finalized an order with Boeing for sixteen new Boeing 737 MAX aircraft.[87] Purchase rights for eight additional 737s had also been signed. The value for all sixteen aircraft was USD 1.6 billion at Boeing list prices, but the actual purchase price was confidential. The aircraft will be delivered in 2018-2021. The order is for nine 737 MAX 8s configured for 153 passengers; and seven 737 MAX 9s to hold 172 passengers. In comparison, Icelandair Group’s current Boeing 757-200 aircraft hold 183 passengers.[88]

Icelandair has adopted a strict environmental policy in keeping with Iceland's image as an unspoiled country with clean air, water, sea and nature in general. The goal of this policy is to minimize Icelandair’s total environmental impact and to establish sustainable practices by optimizing the use of the resources at the company's disposal.[94] This is done in a variety of ways, from recycling paper in the company's office to trying to create one of the "greenest" ground crews in the industry at Keflavik Airport to inviting passengers to participate in planting trees.[95]

As one of Iceland's largest companies, Icelandair sponsors many events and charities. The company is, together with the City of Reykjavík, one of two main sponsors of the hugely popular Iceland Airwaves, the annual music festival held in Reykjavík on the first weekend in November.[96] The festival spans five days (Wednesday–Sunday) and its main focus is showcasing new music, both Icelandic and international.

On 29 May 1947, a Flugfélag Islands Douglas DC-3 (registered TF-ISI) crashed near Hjedinsfjordur during a scheduled domestic flight from Reykjavík to Akureyri, killing the 21 passengers and 4 crew on board. To date, this remains the worst aviation accident in Iceland.[97]

On 7 March 1948, a Avro Anson Mk5 belonging to Loftleiðir crashed on the mountain Skálafell enroute from the Westmann Islands (Vestmannaeyjar) to Reykjavík, killing the pilot and the five passengers on board.[98]

On 31 January 1951, the seventeen passengers and three crew members on board a DC-3 registered TF-ISG were killed when the aircraft crashed in the sea off the Icelandic coast near Hafnarfjörður. The pilots were attempting to land the aircraft at Reykjavík Airport in heavy snowfalls following a flight from Vestmannaeyjar, when radar contact was lost.[99]

On 22 January 2002, the crew of Icelandair Flight 315, a Boeing 757-200 registered TF-FIO with 75 passengers on board, unintentionally entered a series of extreme manoeuvres during a go-around from a low altitude following an unstabilised approach to Oslo Airport, Gardermoen. During the incident the aircraft was subjected to load factors in excess of the design limits, culminating in a dive followed by a +3.59 g pull up manoeuvre clearing the ground by only 321 ft. The speed limit for the flap configuration was also exceeded. Control was regained and a second approach was flown with the aircraft landing safely. The airliner was permitted to proceed on its subsequent scheduled flights without a technical inspection being conducted until 13 March of that year when its manufacturer Boeing recommended further maintenance work after having evaluated the readings from the flight data recorder. The Accident Investigation Board Norway, which led the investigation into the incident, made four safety recommendations, including one to the wider aviation community on operational procedures regarding discontinued approaches.[104]